There's a crisis at the IRS -- and it's not what you think
Some think Uncle Sam has too much leeway collecting taxes as it is, but the truth is the IRS needs more money to do its job properly.
This post comes from Janet Novack at partner site Forbes.com.
No, this isn’t an article about how the Internal Revenue Service is a corrupt, political tool, because it’s not -- despite its ham-handed handling of Tea Party and other organizations’ applications for 501(c)(4) tax exemptions and the bonuses it indiscriminately paid to IRS employees behind on their own taxes.
The IRS is, however, an insular, often tone deaf and sometimes bumbling bureaucracy which is being starved of the resources it needs to do its job. Since 2010, its Congressional appropriations have fallen 7 percent -- and that’s in nominal dollars, before any adjustment for inflation. During the same period, its appropriations funded workforce has shrunk by 10 percent, with enforcement staff down 15 percent, according to numbers Congress' Government Accountability Office released last week. Meanwhile, the tax agency’s workload has increased with the explosion of identity theft tax refund fraud; a 4 percent growth in returns filed; and new laws to administer, including the Affordable Care Act (a.k.a. Obamacare).
"The IRS is in crisis and it's not the crisis that everybody thinks it is," IRS Taxpayer Advocate Nina E. Olson said in an interview. "It's a crisis of insufficient funding and too much work and now, insufficient skills in our employees who are not being trained," she added.
Faced with both a budget crunch and embarrassing revelations about silly spending on conferences, including the production of Star Trek and employee line dancing videos, the IRS slashed training spending in 2013 to 83 percent below its 2010 level.
Even a relatively smooth recent tax return processing season couldn’t mask what the IRS Oversight Board calls, in testimony it is submitting to the Senate this week, "an alarming erosion in both customer service and enforcement that shows no signs of abating."
Consider this: During fiscal 2014, the IRS plans to audit only 4.2 percent of corporations with assets in excess of $10 million, down from 5.6 percent in 2013 and 6.2 percent in 2011. The individual taxpayer audit rate is expected to sink to just 0.80 percent, down from 0.96 percent in 2013 and 1.1 percent in 2011. Last year, enforcement revenues from audits dropped $400 million to $9.8 billion, the lowest in a decade, even though there’s no indication that people are cheating less. (The IRS estimates that in 2006 -- the most recent years it has studied -- the public voluntarily paid 83 percent of what it owed in a timely fashion, with enforcement and late payments bringing the compliance rate up to 85.5 percent.)
Olson, who's known for worrying foremost about deteriorating taxpayer service, now considers enforcement to be at dangerously low levels too. "At some point if you keep stripping from enforcement, the word will get out to people that maybe the IRS hasn't been catching stuff and that in terrorem effect will dissipate. That may take five years to show up," she said.
As for service, the IRS reports that thanks to a lower volume of phone calls this past tax filing season, a higher than expected 73 percent of callers who tried to get through to a human at the IRS were able to do so. The agency attributes the reduced volume to fewer tax changes, but volume may also have been suppressed by headlines warning taxpayers not to even bother calling the IRS.
Anyway, as seasonal phone staffing drops off, the IRS expects service to deteriorate, with an average of around 60 percent of callers getting through to a human during FY 2014 as a whole. The same pattern held last year too; during last July, August and September, only 3 out of 10 callers got through to a human being and those who did spent an average of more than half an hour on hold before breaking through.
Another indicator of declining service: the IRS has stopped answering "complex" tax law questions. Such as? Olson shared a few examples of what’s now on the IRS' too hard for us list: "I deliver pizza for my employer using my car. How can I deduct my car expenses?" and "I received an inheritance. Do I have to report it?"
Even more alarming is the growing time it takes the agency to respond to taxpayers' correspondence -- a crucial service indicator since the IRS conducts 75 percent of its individual audits by mail and sends out millions of additional notices a year questioning some item on a tax return. When taxpayers write back with evidence of why they don't owe more, they rightly expect someone at the agency to read their letter in a timely fashion. Yet at the end of fiscal 2013, the Oversight Board reports, 53 percent of taxpayer correspondence waiting to be worked was "overage" -- meaning the IRS hadn't responded within 45 days of receipt. That’s up from 28 percent at the end of FY 2010.
Sound bad? Things are likely to get a lot worse at the IRS before they get better. The Obama Administration has asked for a 10.5 percent ($1.2 billion) increase in funding for the agency for 2015, categorizing most of that as revenue raising initiatives that shouldn't be subject to agreed budget caps.
Good luck getting that through a Republican House more interested in investigating the IRS than funding it. The nature of what it does and the IRS' own missteps have combined to turn it into arguably the biggest government casualty in the partisan wars.
"What is an historically unpopular agency that has been seen somewhat skeptically, especially by the Republicans, is now even more so," said Mark W. Everson, who served as IRS Commissioner from 2003 to 2007 under President George W. Bush. In an interview, he praised new IRS Commissioner John A. Koskinen as a "straight shooter." But he doesn't see Koskinen as able to change the political dynamic.
"I would tell you this doesn’t get fixed until you have a Republican President. Then the administration can say to (Republicans in) Congress, 'Look, this is our problem. We've got to make this thing work,'" said Everson, now vice-chairman of alliantgroup.
House Republicans have, of course, blocked any funding for the IRS to process or police the new health insurance subsidies (technically, refundable tax credits) that are at the heart of Obamacare. The new credits are sure to create confusion during the next filing season and the IRS projects that without more funding just 53 percent of callers will be able to get through to a human being in 2015.
Beyond clogged phones, "the affordable care act is so controversial that it's going to wash over the agency just like the 501(c)(4) stuff did," further eroding the IRS' popular support, Everson predicted. He worries that declining support for the IRS, combined with falling enforcement, could create a "bad cocktail" that makes younger generations less likely to comply with the tax law.
Olson noted the IRS is now focusing on four priorities: implementing Obamacare and the new Foreign Account Tax Compliance Act (FATCA); containing the identity theft refund fraud epidemic; and making sure the 2015 filing season goes smoothly. All other information technology projects are on ice, including a new fraud filter; a system that would allow the IRS to call taxpayers back when it's their turn (the way Amazon customer service does) rather than placing them on endless hold; and new matching programs to make use of the stockbroker basis reporting Congress mandated back in 2008.
For those coming from a business environment, what the IRS can't do is simply stunning. For example, about 94 percent of small businesses using accounting software keep their records on Intuit's QuickBooks. But the IRS hasn't been able to afford to give all its own small business auditors Quickbooks, so that they can accept electronic records from those they're auditing. (That's on the 2015 budget wish list too.)
"The IRS will be stretched to the breaking point over the next year and we will see whether by just focusing on those four things it can pull off the 2015 filing season okay," said Olson. "We will either just squeak through, or all chaos will break out."
More from Forbes.com
VIDEO ON MSN MONEY
"The IRS needs more money to do its job properly"
LOL...how about the millions just given away in bonuses to those tax cheats who work for the IRS, maybe they can use that money.
Obviously, this guy doesn't understand government budgets as YEARLY increases are built into them.
So if an automatic increase of 5% is built into the budget, and then they only get a 1% increase, they all scream that they got a 4% cut! No, you got a 1% increase! And let's not forget that 5% increase turns into a 5.25% increase the second year, 2.00 + 5% = 2.10 + 5% = 2.205 <-- See how that works? It grows exponentially.
Cry me a river about how the government needs more of my money when the IRS spends millions of our dollars on a Star Trek themed training video, spends more millions on trips to Las Vegas and gives away thousands of our dollars in "swag bags" and then targets individuals based on their political views!
This is satire, right?
What a joke. MSN should be ashamed of themselves for publishing this garbage.
GET RID of the IRS and we won't have to worry about them being under funded. Straight tax where you pay as you spend! And maybe we could also get rid of the insurance tax called obamacare! But I doubt it!
And to think they just gave themselves big bonuses with our hard-earned tax dollars! Abolish this corrupt arm of the administration!
Pecan pie - at the rate our government is going - it needs to be defunded!
The US State Dept can't account for 6 Billion Dollars, and we are supposed to trust these people with even more of our money ??? It's time to retool or abolish the IRS.
The IRS is as corrupt as Obama. It is being used for political uses. The administration still is stone walling on it. Felonies have been committed. Taxpayers have been intimidated. Enemies of Obama have been denied due process. They have been targeted for special audits and harassment.
Just remember the next time the White House changes hands the same will be done to democrats, after all the IRS employees are fired and we replace them with Republicans, and give them orders to shut down all their favorite liberal organizations.
The corruption in the IRS is so Nixonian it is unbelievable.
sharriannie and I totally agree...$200 million in 2 years for bonuses being paid to IRS workers, many of whom have
bad conduct reports against them and who themselves don't file/pay taxes. Someone needs to explain to my WHY ANY
government agency gets bonuses simply for doing their job. All the rest of us go to work, get paid for doing our job, and
we never see a nice big fat bonus for just showing up everyday. WHY THE GOVERNMENT employees?? And now they
want more money...for what, bigger bonuses?? They have a yearly budget ....do what the rest of us do and live within your
budget, cut out the bonuses, and make everyone do their job. All this would be so simple if they would just do a flat tax on
everything we buy. At least then EVERYONE would be contributing, not just the middle class and the rich. Unfortunately,
this will never happen when you have 49% of this country sitting around with their hands out waiting for the nanny gov't to
take care of them. WHAT A COUNTRY!! Sadly, the phrase "Common sense" simple no longer exists in our governments'
The IRS needs more money so they can buy more bumper stickers and posters from Democratic candidates to decorate their offices with. They also need more staffing to go after conservative organizations, and more people to man the phone banks during elections to push for Democrats.
They could also use more money for training video productions, and taxpayer-funded junkets. And lets not forget the bonus money they get for doing their job.
They definitely need more money, just like the MSNBC Money staff says. Honest.....
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